Dow Jones Industrial Average (DJIA) futures struggled for traction on Tuesday as the ongoing trade war continues to confuse and spook Wall Street investors.
In the wake of renewed trade tensions between China and the US, the world’s largest wealth management firm, UBS, is dumping equities and urging investors to do the same.
“[Trade war escalatuons] justifies a reduction in risk in our portfolios in order to lower our exposure to an uncertain political environment.”
In a separate note to investors on Monday, the firm doubled down on its safe-haven play, setting a $1,600 price target for gold in the coming three months.
“Gold has demonstrated its safe-haven qualities and we stay long the metal, a trade we initiated in mid-May.”
Dow futures flat ahead of Tuesday open
Dow Jones Industrial Average futures struggled to break into positive territory in early trading Tuesday. Despite a spirited rally at 5 am ET, stock futures struggled for traction. Dow futures were 40 points lower at 25,903.
Wall Street dumps stocks
The UBS note comes in the wake of Trump’s renewed threat to impose 5% on $550 billion worth of Chinese goods by October 1. The US president later claimed that China wanted to come back to the negotiating table, a claim that multiple Chinese sources quickly debunked.
The uncertainty triggered UBS to issue a warning to investors:
“The US-China trade dispute has escalated in recent days, raising the risk of a cycle of retaliation that undermines global growth and equity markets.”
The firm acknowledged that Trump’s latest tariffs would have only a “marginal” effect on the US economy, but they are lowering the firm’s exposure to equities as a precaution.
“Downside risks are increasing for both the global economy and markets. As a result, we are reducing risk in our portfolios by moving to an underweight in equities to lower our exposure to political uncertainty.”
Dow at risk but safe havens emerge
UBS might be cautious on stocks, but they’re bullish on gold. In a separate note to investors on Monday, they reaffirmed their $1,600 price target for the safe-haven metal.
According to UBS, the only thing that stands in the way of gold’s new annual high is a conclusion to the trade war madness.
“The main risk to our call is a back flip by Trump or concessions and deescalation by China, paving the way for a trade deal ahead of the U.S. presidential elections in 2020.”
Last modified: September 23, 2020 12:55 PM